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The perfect 10

Neal Underwood talks to T Bailey fund manager Jason Britton about his new UK best ideas vehicle and how he chose his underlying funds

Jason Britton of multi-manager T Bailey believes funds of funds have not done themselves justice in the Investment Management Association’s UK all companies sector and that a focused portfolio of funds is the way forward. With this in mind, the group launched its UK best ideas fund on October 1. It has 10 underlying funds, each with a 10 per cent weighting.

Why did you launch the UK best idea fund?

T Bailey is a growing business. The question was, where did we go next? There are a number of bandwagons we could have jumped on but the UK all companies sector makes up 25 per cent of UK funds so we thought we would try to do something different and vibrant. We have run the growth fund for eight years, and 40 per cent is in the UK. We have got a track record of identifying good new funds.

Are funds of funds suited to UK equities?

We are big on research and it is clear that funds of funds generally outperform single manager funds and manager of managers. But this does not seem to be the case in the UK all companies sector. This is largely because not many groups have tried to run funds of funds in this sector. Why can’t they do it in the UK all companies sector? They have tried to take the process they use in the balanced sector and it does not work.

This is a challenge for us intellectually. This is a fund that should do well. We will be disappointed if it is not first quartile over, say, three years.

What are the 10 underlying funds and what was the rationale for each?

Our best ideas are usually based on conviction investing by managers who are not constrained by benchmarks, who run focused funds typically comprising 25 to 50 holdings and who are not slaves to house styles. The managers we have chosen all run their funds with conviction in different ways.

Do you still need to blend the funds or is it simply the 10 best ideas?

You do have to look at the overall skew. Although we have our best ideas, we must ensure they give a balance. The portfolio includes a mix of experienced managers and newer products, growth-orientated funds and value-driven styles, large, mid and small-cap, big houses and nimble boutiques.

What sort of clients are you targeting with the fund? Will its more aggressive approach make it riskier?

I do not think it is riskier. It is ideal for many clients, for example, if their Peps and Isas need putting into a managed portfolio. For anyone who wants UK equities exposure over the long term, this should give them food for thought.

How often will you review the holdings and how often will you rebalance back to 10 per cent in each fund?

We are not afraid to make tough choices as and when. We will continue to make sure funds are doing the job they are supposed to and we will not be afraid to make decisions. At the moment, rebalancing should be relatively easy as we have quite strong inflows. We will look to have an equal weighting in each fund, not rigorously but as best as we can.

The launch follows a similar product from Skandia. Do you anticipate more such funds from other houses in future?

The naming of funds is a key consideration. Best ideas encapsulates a fund with this approach. This is what this fund is all about. It also sets us apart from other funds of funds which have taken a more diverse approach to managing funds in this sector. There will be more funds of this type.

One of the successes of the last decade has been the emergence of more choice among actively managed alpha-generating UK funds, whether they call themselves focus, unconstrained, alpha or whatever. In essence, it is conviction investing. It is about looking for talented managers with the freedom to back their judgements and allocate their capital in the best interests of investors.

Britton’s 10 to follow
F&C growth & income – Ted Scott
We used to hold the stewardship income fund but we switched into this one as soon as Scott took over. It has been in the top two or three funds since we invested in August 2005. Scott does not get distracted by sell-side antics. He is a very good manager.

Invesco Perpetual income – Neil Woodford
Besides being one of the best income managers around, Woodford also has other attributes. He has a largecap bias and is a contrarian.

Jupiter UK growth – Ian McVeigh
This is a manager who is not at all constrained. We have held the fund for some time in our other portfolios.

Legal & General growth – Robert Churchlow
This is a 25-stock portfolio with 4 per cent in each. L&G’s UK equity team has a relatively low profile but its active desk has delivered fabulous performance. Its focus on fundamental research gives it the edge on many other managers.

Old Mutual UK select mid-cap – Ashton Bradbury
We have held Bradbury before but last year we thought mid-cap had got ahead of itself and sold out. In a portfolio of 10, however, you can make space for a mid-cap fund, so we went for the very best. His conviction comes from doing his own thing.

PSigma income – Bill Mott
We think we are at an inflection point in the market and Mott loves inflection points. You cannot argue with his track record. He takes a themed approach. We think we are going to see a lot more volatility going forward and a lot of quant models might start struggling.

RAB UK dynamic – Mark Darell-Brown

RAB made its name as an innovative hedge fund house. Darell-Brown has been running long/short money for a long time. We stripped out the long part of his portfolio and the resultant performance was up there with the very best. You have got to find new talent in this industry.

Rensburg UK managers focus – Mark Hall, Colin Morton, Paul Spencer, Stuart Sharp

We faced a choice over whether we went just with Mark Hall or all the managers there. We chose all the managers. They are on the same desk and I am sure a lot of desks’ managers cross-fertilise ideas. It has had stunning performance.

Saracen growth – Jim Fisher, Julian Fosh

We were the first UK fund of funds to own this fund. It is the antithesis of a big investment house – a small team in small premises in Glasgow, focusing on bottom-up research.

Schroder UK alpha plus – Richard Buxton

There are attractions over the ability of the manager and its large-cap exposure. It is a fund that needs little justification.

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